Smaller Stocks Are Poised to Shine, Dot-Com Veteran Jacob Says

(Bloomberg) -- Ryan Jacob, a veteran of the dot-com boom-and-bust era who has worked his way back to the upper reaches of the fund-performance heap, isn’t worried about equities being expensive, though he expects smaller stocks to outperform heading into 2022.

“I don’t think we’re headed toward some imminent collapse in the markets,” Jacob, the chief executive officer at Jacob Asset Management, said in a recent interview. “We’re heading for a period where small caps are going to outperform large caps to a significant degree. And it has to do with interest rates” heading higher. He added that “it’s going to be a lot harder for the indexes to post big gains, because they’re so dominated by the large caps.”

Jacob, whose firm has around $330 million under management, said that fund managers’ main challenge in 2020 was which companies would benefit from the changes to our economy. This year it’s been about companies that can continue that success versus ones that saw unusual temporary benefits that may be harder to build on. Next year, as we return to normalization, the challenge will be how companies fit in.

His Jacob Internet Fund, which invests primarily in internet-related stocks, is in the top 5% of its peer group over one month, year-to-date and over a three-year time frame, according to data compiled by Bloomberg. He’s a survivor, associated with triple-digit fund returns in the late 1990s, only to see his flagship fund crater more than 90% in the dot-com bust, then work its way back slowly over the decades. Top holdings in the Internet Fund include OptimizeRx Corp., MongoDB Inc., Voyager Digital Ltd. and Twitter Inc.

Jacob’s views include:

• On cryptocurrencies: “These markets have been tested in the last five years much more so than the internet in the late 1990s. The resiliency has been extraordinary.” He added: “I would be careful in being too negative or saying this is going to end badly”
  • He’s limited crypto exposure to about 10% of the portfolio
• On Big Tech: He sold the last of his Apple Inc. holdings a little over a year ago as it’s a “terrific investment, just not for us.” Firm still owns Meta Platforms, Inc, formerly called Facebook Inc., and Google’s Alphabet Inc., which “make the cut because they’re megacaps but they’re growing like small caps”
• On Cathie Wood, the high-profile chief executive officer of Ark Investment Management: “She has no peer in terms of the marketing, the branding -- it’s been extraordinary”
• On starting his own exchange-traded fund, the Jacob Forward exchange-traded fund (ticker JFWD) “We’re excited to establish a bit of a record and see what kind of demand is there”

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